Margin Calls May Be Less Than A Lost Sales Opportunity

August 26, 2010 11:36 AM
 
Farmers are giving up 15¢ to 20¢/bu. in fees or lower basis on cash contracts to avoid margin calls, reports Bob Utterback of Utterback Marketing. "I understand the fear of cash-flow needs if prices rally strongly, but the actual cost of margin calls is likely to be much less than farmers are leaving on the table."
 
The math: A futures contract is 5,000 bu. At 6% interest if the margin call was in force a whole year, a $1 rally would cost $300 in interest—6¢/bu.
 
"To lose 15¢, you would have to borrow $12,000 margin for a whole year," he says. "That’s a $2.50+ rally."

 

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